Income Tax Refund: Eligibility, Procedure and Interest

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Hiral Vakil

Form 12BB
ITR Refund
Salary Components
Last updated on September 21st, 2023

A taxpayer becomes eligible for an Income Tax Refund when the taxes paid are higher than their actual tax liability, inclusive of interest. It could be in the form of advance tax, self-assessment tax, TDS, etc. Hence, it is quite common for taxpayers to be curious to know the ITR refund status.

Eligibility of Income Tax Refund

To be eligible for an income tax refund, the taxpayer must file an income tax return. In the following instances, the taxpayer becomes eligible to claim a tax refund:

How to claim Income Tax Refund?

Income Tax Department will not automatically pay you a refund just because you have paid excess taxes. Hence, it is mandatory to file an income tax return to claim a refund.

Additionally, while filing, it is necessary to declare the income, deductions, taxes paid, and their details (challan details) to the ITD.

File Your Tax Return

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File Your Tax Return

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Once you have filed your income tax return, you need to wait for an assessment from the Income Tax Department. Here is what you need to do:

Check Income Tax Refund Status
Track Income Tax Refund online using PAN. The Income Tax Department issues the refund once the ITR is processed. Check your ITR refund status.
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Check Income Tax Refund Status
Track Income Tax Refund online using PAN. The Income Tax Department issues the refund once the ITR is processed. Check your ITR refund status.
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ITR Refund Timeline

ITD processes the return in batches and posts that credit the eligible refund.

Usually, after e-filing and e-verifying, it takes 45 to 60 days to process a return. Once the return is processed, the ITR refund is credited within a week.

What can be the reasons for the refund failure?

There could be numerous reasons for not getting an income tax refund in time, but the following are some of the most common:

In case of refund failure, the taxpayer can issue a refund re-issue request.

Interest on IT Refund

Many times the taxpayer does not get the refund in due time, in such a case Income Tax Department pays interest on a late refund. However, no interest shall be payable if the amount of refund is less than 10% of the tax as determined under section 143(1) or tax determined under regular assessment.

Hence, when the refund is more than 10% of the total tax payable, the taxpayer is entitled to receive a simple interest on the tax refund u/s 244A of Income Tax Act. Interest accrues at the rate of 0.5% per month or part of month.

The interest is calculated from the beginning of the next financial year i.e., from April 1 till the date of refund.

In case of interest on refund of a belated return, interest calculation is done from the date of return filing till the refund is received.
Tip
In case of interest on refund of a belated return, interest calculation is done from the date of return filing till the refund is received.

For example, Surbhi has a total tax liability of INR 30,000, and she has paid INR 44,000 as tax. She can claim the excess INR 14000 as an ITR refund. Now, if the ITD delays issuing the refund, she will be liable to get interest at 0.5% per month, as INR 14,000 is in excess of 10% of her total tax liability.

Taxability of IT Refund

IT Refund

The income tax refund is not an income and is therefore, is not taxable.

Interest on IT Refund

The interest amount is taxable under the head “Income from other sources“. Consequently, while filing returns for the financial year (FY) in which the refund was received, the interest will be taxable as per the tax slab rate.

FAQs

Why am I not getting a ITR refund?

Your may not be getting a refund for one of the following reasons:
1. You may not have filed an income tax return for the relevant assessment year
2. Your taxes paid matches your total tax liability for a relevant assessment year
3. You might have forgotten to claim taxes paid on your return
4. You might have furnished in-correct bank account details in your return

Is income tax refund taxable?

No, a refund received by a taxpayer is not taxable. But, any interest received on the refund is taxable in the year in which the refund is received by a taxpayer.

After the ITR is processed, how many days it takes for ITR refund?

Income Tax Department processes the refund only after processing your ITR. The taxpayer can expect a refund within 10 days to 2 weeks from the processing of the refund.

I missed filing my ITR within the due date. Can I still claim an IT refund?

Yes, you can file a belated return and claim the eligible refund. The due date to file a belated return is 31st December of the relevant assessment year.

Where will I get my income tax refund?

You will receive your refund directly in your Primary bank account. You can choose the primary bank account while filing your ITR.

What to do if my tax Refund is returned?

If your tax refund status is ‘refund returned’ then it means that ITD had tried to credit the refund to your bank account, but it failed. In such a case you are required to submit a refund reissue request.

Got Questions? Ask Away!

  1. Can I claim my refund if I miss filing my ITR before the due date?